ANNUAL 2008 REPORT 2008 - bahraincredit.com.bh · *' fe k_\ gi`fi p\Xi% These are difﬁcult times...

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BAHRAIN COMMERCIAL FACILITIES COMPANY BSC

ANNUAL REPORT2008

�ســــــــركة البـحـــــــــــريـن للت�ســهـــــــــــيالت التـجـــــــــــارية �ش.م.ب

التـقــــريــر

الـ�ســـــنوي

2008

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Bahrain Commercial Facilities Company BSC was established on August 29, 1983 under Bahrain’s Commercial

Companies Law 1975 (Legislative Decree No 28 of 1975), as a closed Company with an authorised capital of

BD 10,000,000 and issued capital of BD 5,000,000 with an objective to act as a specialist finance Company in

Bahrain. The duration of the Company, according to its Memorandum and Articles of Association, is 50 years

from its date of establishment and is extendable by a resolution of the shareholders passed at an Extraordinary

General Assembly Meeting, provided the approval of the Central Bank of Bahrain (CBB) is also obtained.

Effective 26th June 2005, the Company became licensed and regulated by the CBB to operate as a financial

institution. Prior to this, the Company was licensed and regulated by the Ministry of Industry & Commerce and

was supervised by the CBB.

Consumer Finance

Bahrain Credit is the leading provider of short, medium and long term consumer finance

for residents of the Kingdom of Bahrain, including vehicle finance, personal finance and

mortgage finance.

Automotive

National Motor Company WLL (NMC) is one of the leading companies in Bahrain for the

sale and service of vehicles. The Company has the exclusive national franchise for Honda

and General Motors (Chevrolet, GMC, Cadillac and Hummer).

Real Estate

Tas’heelat Real Estate Services Company SPC (TRESCO) was established in 2002, and

is actively involved in the valuation and brokerage services of land and properties within

the Kingdom of Bahrain.

Insurance

Tas’heelat Insurance Services Company WLL (TISCO) was established in 1997 to arrange

a wide range of insurance products and services that include motor, home, life and travel

insurance.

CONTENTSOperational Highlights 4

Financial Highlights 5

Chairman's Report 6

Board of Directors 8

Corporate Governance 10

Executive Management 12

Organisation Chart 13

Management's Review of Operations 15

Corporate Social Responsibility 20

General Information 21

Financial Statements 22

His Highness Shaikh Salman

Bin Hamad Al Khalifa

The Crown Prince and

Deputy Supreme Commander

of the Kingdom of Bahrain

His Majesty King Hamad

Bin Isa Al Khalifa

The King of the

Kingdom of Bahrain

His Highness Shaikh Khalifa

Bin Salman Al Khalifa

The Prime Minister of the

Kingdom of Bahrain

Annual Report 2008

OP

ER

AT

ION

AL

HIG

HL

IGH

TS

Highlights of the 25th year of the company’s operations

Credit:

Automotive:

Real Estate:

Insurance:

5Bahrain Commercial Facilities Company BSC

FIN

AN

CIA

L H

IGH

LIG

HTS

2003

101

2004

121

2005

125

2006

145

2007

172

2008

200

Total Assets (BD million)

2003

22

2004

23

2005

25

2006

17

2007

24

2008

26

Return on Average Equity (%)

2003

58

2004

67

2005

74

2006

56

2007

74

2008

88

Earning Per Share (fils)*

2003 2004 2005 2006 2007 2008

*Leverage

65

39373526 30

75

2.8*

91

3.0*

90

2.6* 108

3.0*

133

3.4*135

2.1*

* Computed on increased capital base.

BCFC Net Profit (BD’000)

2003

5,685

2004

6,636

2005

8,102

2006

6,205

2007

9,177

2008

11,438

458727

3,960

6,293

885

557

3,2954102,7031,309167

4,440

1,839

3,956

339

268

739

3,520

1,5401,203

3,8563,449

1,330 Insurance Services

Land Activities

Automotive

Consumer Finance

Total liabilities Equity

(BD million)

6

CH

AIR

MA

N'S

RE

PO

RT

Annual Report 2008

On behalf of the Board of Directors, it gives me

great pleasure to present to you the Annual Report

of Bahrain Commercial Facilities Company BSC, for

the financial year ended 31 December 2008. The

annual report includes the consolidated financial

results of Bahrain Credit and the company’s

subsidiaries National Motor Company, Tas’heelat

Real Estate Services Company and Tas’heelat

Insurance Services Company.

Your company has achieved exceptional results

in 2008 in the most depressed global economic

conditions witnessed in decades. Total group

previous year. Your Board recommends a cash

dividend to shareholders at the rate of 35 fils per

know, the shareholders in the 25th anniversary of

the company’s inception decided to increase the

capital of the company and because the new shares

issued will also be eligible for dividend, distribution to

shareholders will be BD 5.65 million, an increase of

These are difficult times and market conditions

are not expected to improve any time soon. Your

company anticipated the onset of some of these

adverse economic conditions – our last two year’s

reports to you have expressed our concerns – and

it is pleasing to note that action taken, including the

timely exit from real estate investments over the past

few years, has financially positioned your company

better than most to be able to withstand a prolonged

economic downturn.

Bahrain Credit produced a strong performance in

has soared with financial institutions reluctant to

lend, official Libor quotes are ignored as the basis for

lending resulting in higher rates even though hedging

instruments such as our interest rate swaps are in place

and general liquidity levels are extremely tight. The

we thank all our shareholders who subscribed to the

issue for their confidence and trust. During 2008,

your company provided new loans of BD 95 million

reflected in non performing loans as a percentage of the

portfolio being currently lower than at the start of 2008.

Your company is well placed in terms of managing

interest rate and liquidity risks and management

continues to focus on maintaining the undoubted

financial strength of the group whilst seeking all

available new business opportunities.

2008 was a good year for National Motor Company

at a time when market sentiment turned negative

and the Yen strengthened. The company is a key

contributor to group profits and its business model,

which emphasizes on post sales service and parts

the 2007 results.

It is gratifying to note that both principals, Honda and

General Motors, view our region as a key growth area

for their global operations and continue to provide

strong support.

Abdulrahman Yusuf Fakhro

Chairman

7

Tas’heelat Real Estate Services Company has been

proven right in its assessment over the past few

years that the real estate market was fully valued.

The main activity will continue to be the provision of

valuation services, both necessary and appropriate in

this depressed market.

The following are the changes in the composition of

one of our long serving members, Mr. Khalid R. Al-

Zayani resigned in February 2008 having served on

the Board from June 1987. Khalid had additionally

served on the boards of National Motor Company

and Tas’heelat Real Estate Services Company. He

was also a member of the Remuneration and

Nomination Committee at the time of his departure.

The Board places on record its thanks and

appreciation to Khalid for his valuable contributions

over the years. In March, the Board welcomed Mr.

Abdulkarim Ahmed Bucheery, nominated by BBK

and Mr. Sayed Abdulghani Hamza Qarooni, elected

in the Annual General Meeting.

In accordance with the requirement of Bahrain’s

Commercial Companies Law 2001, we report the

aggregate amount paid to directors during 2008

was BD 331K (BD 246K in 2007) in respect of fees

and subsidiary Board and Executive Committee

attendance allowances. The total shareholding of

the directors in the company is 111.72 million shares

We wish to express our appreciation to our customers

and shareholders for their continuing loyal support

and confidence and to all our employees for their

commitment and hard work. I am also happy to

announce the promotion of Dr. Adel Hubail to the

position of Deputy Chief Executive Officer. Adel

has served us as Secretary to the Board, Group

Strategy Development Officer, Head of Information

Technology and Human Resources and most recently

has managed the consumer finance business with

great distinction. I am confident his leadership and

managerial abilities will serve the company well in

the years ahead.

Finally, we also gratefully acknowledge the guidance

of our nation’s wise leadership and the continuing

support and co-operation received from the

government ministries and organisations of Bahrain,

most particularly the Central Bank of Bahrain and

the Ministry of Industry and Commerce.


Chairman

February 2009

Bahrain Commercial Facilities Company BSC

YOUR COMPANY HAS

ACHIEVED EXCEPTIONAL

RESULTS IN 2008 IN THE MOST

DEPRESSED GLOBAL ECONOMIC

CONDITIONS WITNESSED

IN DECADES.

BO

AR

D O

F D

IRE

CT

OR

S

Annual Report 2008

13

4 56 8

9

107

2

8


1. Abdulrahman Yusuf Fakhro - Chairman

2. Abdulkarim Ahmed Bucheery - Vice Chairman

Nominee of BBK BSC

Securities & Investment Company BSC (c)

3. Abdulrahman Abdulla Mohamed - Director

Nominee of NBB BSC

National Bank of Bahrain BSC

4. Khalid Mohammed Ali Mattar - Director

Chairman - Executive Committee

Company WLL

5. Sh. Mohammed Bin Isa Al-Khalifa - Director

Nominee of Social Insurance Organisation (SIO), Bahrain

Organisation, Bahrain

6. Ebrahim Abdulla Buhindi - Director

Chairman - Audit Committee

7. Sayed Abdulghani Hamza Qarooni - Director

8. Abdulaziz Saleh Al-Saie - Director

Nominee of Social Insurance Organisation (Pension),

Bahrain

(Pension), Bahrain

9. Ali Abdulla Ahmadi - Director

10. Jamal Mohamed Jassim Hejres - Director

Nominee of BBK BSC

Executive Committee

Khalid Mohammed Ali Mattar - Chairman, Sh. Mohammed Bin Isa Al-Khalifa - Vice Chairman

Abdulrahman Abdulla Mohamed - Member, Abdulkarim Ahmed Bucheery - Member

Audit Committee

Ebrahim Abdulla Buhindi - Chairman, Abdulaziz Saleh Al-Saie - Vice Chairman, Ali Abdulla Ahmadi - Member

Remuneration and Nomination Committee

Abdulrahman Yusuf Fakhro - Chairman, Ebrahim Abdulla Buhindi - Vice Chairman,

Sayed Abdulghani Hamza Qarooni - Member, Jamal Mohamed Jassim Hejres - Member

10

CO

RP

OR

AT

E G

OV

ER

NA

NC

E

Board of Directors

Constituted of ten non-executive members, the

Board of Directors of Bahrain Commercial Facilities

Company BSC exercise their individual and collective

business judgment objectively, transparently and in

good faith in what they reasonably believe to be in

the best interest of the Company, its shareholders

and stakeholders.

The Board of Directors oversees the process of

disclosure and communications to internal and

external stakeholders. The Board of Directors

ensures that disclosure is fair, transparent, and

comprehensive; and reflects the character of the

Company and the nature and complexity of risks

inherent in the business activities of the Company.

In compliance with the local statutory requirements,

the Board of Directors oversees the exercise of

corporate powers and ensures that the Company’s

business and affairs are well managed to meet its

stated goals and objectives. Maintenance of the

highest standards of corporate conduct, including

compliance with applicable laws, regulations,

business and ethical standards, receives considerable

attention by the Board of Directors.

To fulfill its responsibilities, the Board has in place

an Executive Committee, an Audit Committee and

a Remuneration and Nomination Committee.

In 2008, the Board of Directors convened six

meetings. Additionally, in order to avoid conflicts of

interest, a Board Sub-Committee meeting was held

to consider Syndicated Loan proposals in 2008.

The Board of Directors also proposed to the

shareholders, subject to regulatory approvals, an

increase in the Company’s issued & paid up capital

through a rights issue from BD 12,100,000 to

BD 16,335,000. The shareholders approved the

proposal and the rights privileged subscription took

place from 8th October 2008 until 22nd October

2008. The rights issue proceeds were received on

5th November 2008.

Executive Committee

In accordance with Article 23 of the Company’s

Articles of Association, the Executive Committee is

delegated with defined scope of duties and authorities

in relation to Bahrain Credit, TRESCO and TISCO.

The Committee is comprised of four non-executive

members appointed by the Board of Directors on

an annual basis. The Executive Committee has

the role of reviewing reports and activities, taking

decisions on issues within its defined authorities

and recommending to the Board of Directors on

other issues that are above its authorities. These

responsibilities and authorities cover a wide area

ranging from credit approvals, write-offs, strategy,

business planning, human resources policies and

practices, donations and signing authorities.

To fulfill its assigned responsibilities, the Executive

Committee held six meetings in 2008.

The Audit Committee

The Audit Committee assists the Board of Directors

in overseeing the responsibilities for the financial

reporting process, the system of internal control,

the audit process, monitoring compliances with the

group’s risk management policies and procedures

and the process for monitoring compliance with

laws and regulations and the Company’s code of

Annual Report 2008

11

conduct. Consistent with this function, the Committee

encourages continuous improvement of, and fosters

adherence to, the Company’s policies, procedures

and practices at all levels.

The Audit Committee consists of three members of

the Board of Directors. All members are non-executive

directors who are financially literate and independent

of the management and free of any business or

other relationships (including, without limitations,

day to day involvement in the management of the

business) which could interfere with the exercise of

their independent judgment. The Committee directs

the role and assesses the performance of the Internal

Audit Department.

The Audit Committee has the authority to conduct

or authorize investigations into any matters within

its scope of responsibility and has full access to all

information required to discharge its functions.

During 2008, the Audit Committee held quarterly

meetings and on each occasion, met with the

External Auditor.

Remuneration and Nomination Committee

Comprised of four non-executive directors appointed

by the Board on an annual basis, the Remuneration

and Nomination Committee provides advice to the

Board on matters related to the nomination and

appointment of Directors and senior executives.

The Committee makes recommendations to the

Board on the appointment of Directors, the Chief

Executive Officer, the Deputy Chief Executive Officer

and the General Manager of National Motor

Company WLL; the Secretary to the Boards; Directors

to the Boards of the Company’s subsidiaries; and

membership to all Committees of the Board.

The Committee reviews and makes recommend-

ations to the Board on all matters of remuneration

and compensation of Directors and the

remuneration of senior executives, the bonus,

share option, redundancy and termination payment

policies of the Company. The Committee assesses

the roles of the Chief Executive Officer, Deputy Chief

Executive Officer, General Manager of National

Motor Company WLL and Secretary to the Board.

The Committee also ensures that failure is not

rewarded and that the duty to mitigate loss is fully

recognized. Additionally, the Committee determines

the policy for the disclosure of Directors and Executive

Management’s remuneration.

The Remuneration and Nomination Committee

convened three meetings during 2008.

Risk Manager, Compliance Officer and Anti-

Money Laundering Officer

Bahrain Commercial Facilities Company BSC has a

Risk Manager, Compliance Officer and Anti-Money

Laundering Officer. These functions are independent

of business lines and the day-to-day running of the

various business areas. In addition, these functions

are separate from the Internal Audit function.


THE BOARD OF DIRECTORS

ENSURES THAT DISCLOSURE

IS FAIR, TRANSPARENT AND

COMPREHENSIVE; AND REFLECTS

THE CHARACTER OF THE

COMPANY

8 6 7 5 3 4 10

2 1 9

1. Ian Levack

Chief Executive Officer - BCFC

2. Dr. Adel Hubail

Deputy Chief Executive

Officer - BCFC

3. Geoff Thomas

General Manger - NMC

4. Rajiv Mittal

Senior Vice President, Head

of Operations - BCFC

5. Taleb Al-Shaikh

General Manger - TRESCO

6. Ali Al-Daylami

General Manger - TISCO

7. Fadhel Al-Mahoozi

Vice President , Head of

Credit and Recoveries -

Bahrain Credit

8. Abdulla Al-Wedaei

Senior Manger, Head of

Sales Operations - NMC

9. Mohamed Fadhel

Senior Manger Operations

and Administration - NMC

10. Nader Ebrahim

Senior Finance Manager -

NMC

Mahmandar

12 Annual Report 2008


OR

GA

NIS

AT

ION

CH

AR

T

Board of Directors

Deputy

Chief Executive

Officer

General Manager

NMC

Audit CommitteeRemuneration &

Nomination Committee

Deputy General

Manager

Human

ResourcesOperations

Insurance

Services

Consumer

Finance

Real Estate &

Corporate Lending

Operations &

AdministrationSales After Sales

Finance &Treasury

ITFinance &Treasury

Risk &Compliance

Credit &Recoveries

Branches Marketing

Internal Audit NMC Board Executive Committee Board Secretary

Chief Executive

Officer

SpecialProjects

EMPOWERING

INDIVIDUALS TO

ACHIEVE THEIR GOALS

Annual Report 2008

2003

46

2004

54

2005

53

2006

61

2007

80

2008

95

Bahrain Credit New Lending (BD million)

14

15

MA

NA

GE

ME

NT

'S R

EV

IEW


Financial institutions and corporations worldwide

are facing extraordinary global economic challenges

requiring sizable financial resources and stringent risk

management practices to survive and prosper. The

BD 25 million equity rights issue in October 2008,

Insurance Organisation, BBK and National Bank of

Bahrain-has given the company an exceptionally solid

2008 as against 3.4 in 2007. This positions us very

well to withstand any prolonged economic downturn.

It also provides flexibility to consider strategic

investments in this depressed market in current and

related businesses.

PARENT COMPANY

In 2008, the company provided BD 95 million of

The majority of these loans were in our core product,

2007 and which is a business we will fully support in

2009. As we mentioned in the 2007 Annual Report, we

took the view that the real estate market was overheated

and were therefore, in 2008, extremely selective and

cautious in mortgage lending. The alignment of the

businesses into consumer finance and corporate

lending and continued emphasis on collection

in these turbulent times, focusing on the portfolio quality

is more important than portfolio growth.

The company’s sound leverage ratio is reinforced by a

highly disciplined approach to liquidity management.

Although more than one-third of the portfolio will be

are repayable only in 2011 or later. This reliable cash

flow also enables the company to re-price the portfolio

on a regular basis, whilst providing continuity and

certainty to its loyal customers. We additionally access

the local banking market and maintain relationships

with many premier institutions. It is pleasing to note that

were being used. Short term line utilisation is expected

to further decline in the coming year given more

moderate levels of anticipated consumer demand.

The company has always proactively managed its

interest rate risks and using hedging instruments is one

measure we have used for the past several years. The

company fixed its interest rate costs for a substantial

portion of its borrowings in 2007 swapping the

uncertainty of officially quoted Libor (normally used

by lenders to rollover all our floating rate borrowings)

for a fixed rate. Probably for the first time in living

memory, in 2008 banks abandoned quoted Libor as

the basis for fixing their lending rates (inter bank offer

rates assumed by them in most cases was significantly

higher) but retained the same for our swaps, thus

further increasing our borrowing costs. Accounting

standards require the mark to market valuations of

our swaps to be shown in shareholders’ equity as a

cash flow hedge revaluation reserve. This is a book

entry which reflects the market value of the swaps

if liquidated at the reporting date – something we

manifestly have no intention of doing. The valuation

is based on a number of factors including prevailing

interest rates and the balance duration of the hedge

and is subject to volatility.

OVERVIEW

reported earnings of BD 9.2 million.

Mortagage Loan

Vehicle Loan Personal Loan

Corporate Loan

MA

NA

GE

ME

NT

'S R

EV

IEW

2008 represented a major challenge for the company.

Whilst the automotive market remained robust for

most of the year, market sentiment turned negative

during the last quarter as a result of the current

economic uncertainties. Also during this period, the

Japanese Yen appreciated considerably resulting in

significant increases in costs of vehicles and parts for

our Honda operations.

Despite these difficult trading conditions, National

Motor company returned another year of strong

increase over 2007) and its record earnings of BD 3.5

million (excluding non recurring gains) constituted

Honda’s core models of Accord, Civic and CR-V

continued to experience strong customer demand

and contributed significantly to the brand’s growing

market share. The all-new Honda Pilot and Jazz,

introduced in late 2008, have been well received and

have strengthened the Honda product portfolio.

all-new Cadillac CTS has received an enthusiastic

market response and the depth of competitive product

offerings from Chevrolet and GMC sport utility vehicles

continue to offer a wide choice to customers. During

the last quarter of the year, the market was hit by

negative press concerning the well documented woes

of the American automotive industry. Nevertheless,

we continue to enjoy strong support from the

Middle East headquarters of General Motors. New

product launches and marketing plans are in place

and the clear message from General Motors senior

Annual Report 2008

NATIONAL MOTOR COMPANY Honda Chevrolet GMC Hummer Cadillac

16

A significant event took place in July 2008 when

a major fire broke out at our Sehla facility which

completely destroyed our Central Parts Warehouse.

Fortunately there was no loss of life or serious injury.

Although Service and Parts operations were heavily

impacted, (we were forced to indefinitely close our

important and extremely busy AC Delco Service

Center at Sehla) disaster recovery measures were

placed into effect immediately and we introduced

extended working hours at the 85 service bays covering

our Sitra and Arad facilities. Service operations returned

to normal within record time and the insurance claim

against lost assets has already been settled.

The after-sales operation, parts, service and body

shop divisions returned excellent results exceeding

their planned objectives for the year. The continued

profitable development of this vital business segment

remains a key priority during 2009.


KEEPING THE NATION

IN MOTION

2003

25

2004

30

2005

37

2006

45

2007

63

2008

78

NMC Sales (BD million)

17

Annual Report 2008

The company has registered a net profit of BD

458 thousand for the year principally arising

from realized gains on mezzanine financing.

Whilst the company will continue to pursue

similar opportunities, in the current environment,

such transactions may be considered unusual.

The company has no land bank having for some

time held the view that the real estate market was

fully valued.

As the market corrects, valuations based on

fundamentals will be increasingly sought and the

company will concentrate on fulfilling this demand.

These are difficult times for the industry and it is

not unlikely that troubled assets of investors and

developers unable to finance their projects will

increasingly come to market. The company will

continuously seek to generate additional sustainable

income streams by building an inventory of rental

income generating assets as and when these offer

attractive returns on investment.

TAS'HEELAT REAL ESTATE SERVICESCOMPANY

18

MA

NA

GE

ME

NT

'S R

EV

IEW


TAS'HEELAT INSURANCE SERVICES COMPANY

Tas’heelat Insurance Services Company has had

net earnings. Competition in this industry remains

intense at a time when the global economic crisis

has negatively affected the market. The company

remains well positioned to build on its strong market

position through its solid reputation - innovation

and integrity are the corner stones of the company’s

philosophy for fulfilling customer needs - and the in

house business it generates from Bahrain Credit

and National Motor Company.

19

2009 OUTLOOKWhilst market sentiment is expected to remain weak

since the global financial crisis and the recessionary

environment are far from over, with an exceptionally

strong financial base and a business model that

eschews volatility in favor of reliable returns, the

Group remains cautiously optimistic and expects

the core businesses to outperform the market

and peers.


Supporting Our Community

20


GE

NE

RA

L I

NF

OR

MA

TIO

NBahrain Commercial Facilities Company BSC is a Bahraini Public Shareholding Company. Initially the

Company was registered on 29 August 1983 as a B.S.C. (closed). In April 1993, the Company was registered

as a Public Shareholding Company following the public offering of its shares.

The Company wholly owns National Motor Company WLL, which was established in March 1988, Tas’heelat

Insurance Services Company WLL, which was established in 1997, and Tas’heelat Real Estate Services

Company SPC, which was established in May 2002.

13444

P.O. Box 1175, Manama, Kingdom of Bahrain

Tel +973 17 786000 / 17 311311 / 17 466666

17 737414

+973 17 786010 / 17 311344 / 17 467010

17 737144

E-Mail [email protected]

Website www.bahraincredit.com.bh

Bahrain Credit Building, Building 264,

Road 111, Tubli 701

Isa Town, GOSI Complex,

Muharraq and Sitra

Board of Directors


Chairman

Abdulkarim Ahmed Bucheery

Vice Chairman

Abdulraham Abdulla Mohamed

Khalid Mohammed Ali Mattar

Sh. Mohammed Bin Isa

Al-Khalifa

Ebrahim Abdulla Buhindi

Sayed Abdulghani Hamza Qarooni

Abdulaziz Saleh Al-Saie

Ali Abdulla Ahmadi

Jamal Mohamed Jassim Hejres

Executive Managment

Ian Levack

Chief Executive Officer - BCFC

Adel Hubail

Deputy Chief Executive

Officer - BCFC

Geoff Thomas

General Manager - NMC

Rajiv Mittal

Senior Vice President, Head of

Operations - BCFC

Taleb Al-Shaikh

General Manager - TRESCO

Ali Al-Daylami

General Manager - TISCO

Banks

BBK

National Bank of Bahrain

Standard Chartered Bank

Gulf International Bank

Raiffeisen Zentralbank Oesterreich AG

BNP Paribas

Arab Banking Corporation (BSC)

Arab Bank

National Bank of Fujairah PSC

First Gulf Bank

The Arab Investment Company

Banque BIA

The Arab investment Bank S.A.A.

Ahlibank QSC

Housing Bank for Trade and Finance

Auditors

KPMG

Annual Report 200822

23

INDEPENDENT AUDITORS’ REPORT TO THE

SHAREHOLDERS


Manama, Kingdom of Bahrain

Report on the consolidated financial statements

We have audited the accompanying consolidated financial

statements of Bahrain Commercial Facilities Company BSC ("the

Company") and its subsidiaries (together the "Group"), which

comprise the consolidated balance sheet as at 31 December

2008, and the consolidated income statement, the consolidated

statement of changes in equity and the consolidated statement of

cash flows for the year then ended, and a summary of significant

accounting policies and other explanatory notes.

Responsibility of the Board of Directors for the consolidated

financial statements

The Board of Directors of the Company is responsible for the

preparation and fair presentation of these consolidated financial

statements in accordance with International Financial Reporting

and maintaining internal control relevant to the preparation

and fair presentation of consolidated financial statements that

are free from material misstatements, whether due to fraud or

error; selecting and applying appropriate accounting policies;

and making accounting estimates that are reasonable in the

circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated

financial statements based on our audit. We conducted our

audit in accordance with International Standards on Auditing.

Those standards require that we comply with relevant ethical

requirements and plan and perform the audit to obtain reasonable

assurance whether the consolidated financial statements are free

of material misstatement.

An audit involves performing procedures to obtain audit evidence

about the amounts and disclosures in the consolidated financial

statements. The procedures selected depend on our judgment,

including the assessment of the risks of material misstatement of

the consolidated financial statements, whether due to fraud or

error. In making those risk assessments, we consider internal

control relevant to the entity’s preparation and fair presentation

of the consolidated financial statements in order to design audit

procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of

the entity’s internal control. An audit also includes evaluating

the appropriateness of accounting principles used and the

reasonableness of accounting estimates made by management,

as well as evaluating the overall presentation of the consolidated

financial statements.

We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present

fairly, in all material respects, the consolidated financial position

of the Group as at 31 December 2008, and its consolidated

financial performance and its consolidated cash flows for the

year then ended in accordance with International Financial

Reporting Standards.

Report on other legal and regulatory requirements

In addition, in our opinion, the Company has maintained proper

accounting records and the consolidated financial statements are

in agreement therewith. We have reviewed the accompanying

report of the chairman and confirm that the information contained

therein is consistent with the consolidated financial statements.

We are not aware of any violations of the Bahrain Commercial

Companies Law 2001, the Central Bank of Bahrain and Financial

Institutions Law 2006, terms of the Company’s license or it’s

memorandum and articles of association having occurred during

the year ended 31 December 2008 that might have had a material

effect on the business of the Company or on its financial position.

Satisfactory explanations and information have been provided to

us by the management in response to all our requests.

17 February 2009

Manama, Kingdom of Bahrain


24

CONSOLIDATED BALANCE SHEETAS AT 31 DECEmBER 2008BAHRAINI DINARS THOUSANDS

Annual Report 2008

Notes 2008 2007 ASSETS Cash and cash equivalents 1,144 2,379Loans 7 149,769 129,955 Trade and other receivables 5,041 5,580Inventories, net of provision 9 29,833 23,010Property and equipment 10 13,473 11,490 Other assets 436 28 Total assets 199,696 172,442

LIABILITIES Bank overdrafts 2,971 3,330Trade and other payables 30,411 25,188Term loans 11 81,800 84,927Bonds 12 19,928 19,890 Total liabilities 135,110 133,335 EQUITY Share capital 13 16,335 11,000Treasury shares (464) (171)Reserves and retained earnings 48,715 28,278

Total equity (page 26) 64,586 39,107 Total liabilities and equity 199,696 172,442

Abdulrahman Yusuf FakhroChairman

Abdulkarim Ahmed Bucheery Vice Chairman

Ian LevackChief Executive Officer

The Board of Directors approved the consolidated financial statements consisting of pages 24 - 48 on 17 February 2009

25

CONSOLIDATED INCOmE STATEmENTFOR THE YEAR ENDED 31 DECEmBER 2008BAHRAINI DINARS THOUSANDS


Notes 2008 2007 Interest income 16,906 13,291Interest expense (6,415) (5,384)

Net interest income 10,491 7,907 Automotive sales 77,623 62,952Cost of sales (69,252) (55,810) Gross profit on automotive sales 8,371 7,142

Insurance commission income 927 712 Gross profit on land activities 14 598 1,062 OPERATING INCOME OF THE GROUP 20,387 16,823 Salaries and related costs (3,403) (2,607)General and administrative costs (1,790) (2,099)Selling and promotion costs (1,329) (972)Depreciation (1,158) (1,028)Provision for bad and doubtful loans 7 (1,228) (1,204)Recoveries of loans previously written off 457 381Financing cost (833) (596)Foreign exchange (loss)/gain (361) 254Other operating income, net 15 273 225

Total operating expenses (9,372) (7,646)

PROFIT FROM OPERATIONS 11,015 9,177

Other income 16 423 - PROFIT FOR THE YEAR 11,438 9,177 Basic earnings per 100 fils share 21 88 fils 74 fils Proposed cash dividend per 100 fils share 35 fils 40 fils

Abdulrahman Yusuf FakhroChairman

Abdulkarim Ahmed Bucheery Vice Chairman

Ian LevackChief Executive Officer

The consolidated financial statements consist of pages 24 - 48.

26

FOR THE YEAR ENDED 31 DECEMBER 2008

Annual Report 2008

Cash flow

hedge

Share Treasury Statutory revalution Donations General Retained

capital shares reserve reserve reserve reserve earnings Total

At 1 January 2008 11,000 (171) 9,782 (1,985) 710 7,500 12,271 39,107

Net change in fair value - - - (6,170) - - - (6,170)

Total recognised income and

expense directly in equity - - - (6,170) - - - (6,170)

Profit for the year - - - - - - 11,438 11,438

Total recognised income and

expense for the year - - - (6,170) - - 11,438 5,268

Bonus shares issued 1,100 - - - - - (1,100) -

Rights issue 4,235 - - - - - - 4,235

Purchase of own shares - (293) - - - - - (293)

- rights issue

Premium on rights issue - - 21,010 - - - - 21,010

Directors’ fees for 2007 - - - - - - (220) (220)

Dividend for 2007 - - - - - - (4,349) (4,349)

Donations paid - - - - (172) - - (172)

Transferred to donation reserve (2007) - - - - 280 - (280) -

Transferred to general reserve (2007) - - - - - 2,500 (2,500) -

At 31 December 2008 16,335 (464) 30,792 (8,155) 818 10,000 15,260 64,586

Cash flow

hedge

Share Treasury Statutory revalution Donations General Retained

capital shares reserve reserve reserve reserve earnings Total

At 1 January 2007 11,000 (171) 9,282 61 546 7,000 8,958 36,676

Retained earnings adjustment of subsidiary - - - - - - (55) (55)

Net change in fair value - - - (2,046) - - - (2,046)

Total recognised income and expense

directly in equity - - - (2,046) - - - (2,046)

Net income for the year - - - - - - 9,177 9,177

Total recognised income and expense for the year - - - (2,046) - - 9,177 7,131

Directors’ fees for 2006 - - - - - - (180) (180)

Dividend for 2006 - - - - - - (4,349) (4,349)

Donations paid - - - - (116) - - (116)

Transferred to donation reserve (2006) - - - - 280 - (280) -

Transferred to general reserve (2006) - - - - - 500 (500) -

Transferred to statutory reserve (2006) - - 500 - - - (500) -

At 31 December 2007 11,000 (171) 9,782 (1,985) 710 7,500 12,271 39,107


27

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2008


Notes 2008 2007

Operating activities

Loan repayments, interest and commission receipts 86,864 70,667

Automotive sales receipts 78,161 62,128

Cash expended on operations

Loans disbursed (95,188) (80,399)

Payments to automotive suppliers (72,077) (53,298)

Sale of land - 3,241

Payments of staff salaries and related costs (3,403) (2,607)

Payments of other operating expenses (2,193) (1,803)

Interest paid (6,415) (5,619)

CASH FLOWS FROM OPERATIONS (14,251) (7,690)

Investing activities

Capital expenditure on property and equipment 10 (4,070) (3,034)

Proceeds from sale of property and equipment 10 360 757

CASH FLOWS FROM INVESTING ACTIVITIES (3,710) (2,277)

Financing activities

Term loans (paid) / received, net 11 (3,126) 15,796

Dividends paid (4,349) (4,349)

Directors’ fees paid (220) (180)

Donations paid (172) (116)

Treasury shares purchased (293) -

Rights issue proceeds, net 25,245 -

CASH FLOWS FROM FINANCING ACTIVITIES 17,085 11,151

NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (876) 1,184

Cash and cash equivalents at beginning of the year (951) (2,135)

CASH AND CASH EQUIVALENTS AT 31 DECEMBER (1,827) (951)

Cash and balances with banks 1,144 2,379

Bank overdrafts (2,971) (3,330)

(1,827) (951)


28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2008

Annual Report 2008

1. Reporting entity

Bahrain Commercial Facilities Company BSC ("the Company") is a public shareholding company incorporated and registered in

Bahrain. It provides short-term, medium-term and long-term loans. Effective 26th June 2005, the Company became licensed and

regulated by the Central Bank of Bahrain (CBB). The consolidated financial statements of the Company as at and for the year ended

31 December 2008 comprise the Company and its subsidiaries (together referred to as "the Group").

2. Basis of preparation

a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards

and in conformity with Bahrain Commercial Companies Law 2001 and the Central Bank of Bahrain and Financial Institutions

Law 2006.

The consolidated financial statements of the Group were authorised for issue by the directors on 17 February 2009.

b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments

which are carried at fair value.

c) Functional and presentation currency

These consolidated financial statements are presented in Bahraini Dinars, which is the Group functional currency. Except as

indicated, financial information presented in Bahrain Dinar has been rounded of to nearest thousands.

d) Foreign currencies transaction and balances

Transactions in foreign currencies are converted to Bahraini Dinars at rates of exchange prevailing at the date of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated to Bahraini Dinars at the market rates of

exchange prevailing at the balance sheet date. Realised and unrealised foreign exchange profits and losses are included in

foreign exchange (loss) / gain.

e) Use of estimates and judgements

The preparation of these consolidated financial statements requires management to make judgements, estimates and

assumptions that affects the application of accounting policies and reported amounts of assets, liabilities, income and expenses.

Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in

the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas

of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the

amount recognised in the consolidated financial statements are described in notes 4 and notes 5.

29



3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements,

and have been applied consistently by Group entities.

a) Basis of consolidation

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and

operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in

the financial statements from the date that control commences until the date that control ceases.

The consolidated financial statements of the Group comprise the Company and its fully owned subsidiaries which are

is the agent in Bahrain for General Motors and Honda vehicles.

The carrying value of the Company’s investment in each subsidiary and the equity of each subsidiary are eliminated on

consolidation. All significant intra-group balances, and unrealised income and expenses arising from intra-group transactions,

are eliminated on consolidation.

b) Interest income

Interest income is recognised as it accrues, taking into account the effective yield of the original settlement amount. In compliance

with circulars issued by Central Bank of Bahrain, interest income is placed on a non-accrual status when the principal or interest,

are 90 days or more past due. Interest on non-accrual facilities is included in income only when received. The suspension of

interest income relating to such past due loans is not significant to the Group’s net income.

c) Income from sales and commission

Income from sales of land, motor vehicles and spare parts is recognised when an invoice is raised and the customer becomes

entitled to take possession of the goods. Revenue from warranty claims is recognised when these are approved by the principals

and services have been rendered to the customers under warranty obligations.

Insurance commission income is recognised when the insurance cover note is prepared and the customer becomes entitled to

the insurance policy.

d) Financial assets and liabilities

The financial instruments of the Group consist primarily of loans (balances with banks, loans, trade and other receivables),

derivative financial instruments, bank overdrafts, trade and other payables, bonds issued and term loans. The Group initially

recognises loans and advances on the date that they are originated. All other financial assets and liabilities are initially recognised

on the balance sheet when, the Group becomes a party to the contractual provisions of the instrument.


3. Significant accounting policies (continued)

d) Financial assets and liabilities (continued)

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the

rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards

of ownership of the financial asset are transferred.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are set off and the net amount reported in the balance sheet when the Group has a legal right to

set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial

recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method.

At each balance sheet date and periodically during the year the Group assesses whether there is any objective evidence that

financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence

indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the

future cash flows on the asset that can be estimated reliably.

The Group considers evidence of impairment at both a specific asset and collective level. All significant assets found not to be

specifically impaired are then collectively assessed for any impairment that has been incurred but not identified. Assets that

are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at

amortised cost) with similar credit risk characteristics.

In assessing collective impairment the Group uses statistical modelling of historical trends of the probability of default, timing of

recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit

conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates,

loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they

remain appropriate.

e) Loans and impairment allowance for losses

Loans are created by the Group by providing money directly to the borrowers and are initially recognised at cost and subsequently

stated at amortised cost, less provision for impairment.

Loans are recognised when cash is advanced to the borrower.



All loan balances are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If

any such indication exists, the recoverable amount of the loan balance is estimated.

The recoverable amount of loans is calculated as the present value of the expected future cash flows, discounted at the effective

interest rate of the loan.

The Group measures impairment allowances on portfolios of homogenous loans with similar risk profiles such as consumer

mortgages, personal and vehicle loans. The estimated cash flows for portfolios of similar assets are estimated based on portfolio

indicators such as previous credit loss experience, trends in credit quality and late payments of interest or penalties. Increases

and decreases in the loan impairment allowances for losses are recognised in the income statement.

When there is no longer a realistic prospect of recovery the loan is written off.

f) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment.

Specific impairment allowance for losses is made based on a review of individual balances.

g) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis for spare

parts and on a specific identification basis for motor vehicles. Cost includes purchase price, freight, customs duty and other

incidental expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

h) Property and equipment

Items of property and equipment are stated at cost less accumulated depreciation and impairment losses, if any. The assets’

residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset’s carrying

amount is written down immediately to its residual amount if the carrying amount of the asset is greater than its estimated

recoverable amount.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property and

Buildings 15 to 20 years from occupation

Furniture, fixture and equipment 3 to 6 years

Vehicles 4 years

The carrying amounts are reviewed at each balance sheet date for indication of impairment. If any such indication exists then

the asset’s recoverable amount is estimated. An impairment loss is recognised in the income statement to the extent that

carrying values exceed the recoverable amounts.



3. Significant accounting policies (continued)

i) Borrowing Costs

Interest incurred on bank borrowings related to construction of property and equipment is capitalised until these assets are

ready for intended use.

j) Dividends and directors’ fees

Dividends and directors’ fees payable are recognised as a liability in the period in which they are approved.

k) Statutory reserve and share premium

In accordance with the parent company’s Articles of Association and in compliance with the Bahrain Commercial Companies

capital (excluding share premium). This reserve is not normally distributable except in certain circumstances.

In accordance with the Bahrain Commercial Companies Law 2001 the share premium of BD 4,282 collected as part of public

floating in 1993 and BD 21,010 net of expenses collected as a part of rights issues in October 2008, has been merged with

statutory reserve.

l) General reserve

In accordance with the parent company’s Articles of Association and the recommendations of the Board of Directors, specific

amounts are transferred to the general reserve.

m) Treasury shares

Where the Company purchases its own equity share capital, the consideration paid, including any attributable transaction costs,

are deducted from total equity and recorded as treasury shares until they are cancelled. Where such shares are subsequently

sold or reissued, any gain or loss is included in equity.

n) Income tax liability

Companies are not liable to income tax in Bahrain.

o) Derivative financial instruments and hedging

The Group uses interest rate caps, swaps and foreign currency option contracts to hedge its exposures to the variability of future

cash flows.

Derivative financial instruments are recognised at fair value on the date on which a derivative contract is entered into and

subsequently remeasured at their fair values. Changes in the fair values of derivative financial instruments that are designated,

equity are transferred to the income statement at the same time that the income or expense of the corresponding hedged item

are recognised in the income statement.

The Group does not trade in financial derivatives. Where a derivative financial instrument is used to economically hedge the

foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on

the hedging instrument is recognised in the income statement.



p) Impairment on other assets

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication

of impairment. If any such indication exists, the asset’s recoverable amount is estimated and an impairment loss is recognised

whenever the carrying amount exceeds the recoverable amount. Impairment losses are recognised in the income statement.

q) Retirement benefits cost

Pensions and other social benefits for Bahraini employees are covered by the General Organisation for Social Insurance scheme

to which employees and the Group contribute monthly on a fixed-percentage-of salaries basis. The Group’s contribution to this

scheme, which represents a defined contribution scheme under International Accounting Standard 19 – Employee Benefits, is

expensed as incurred.

Expatriate employees on limited-term contracts are entitled to leaving indemnities payable under the Bahrain Labour Law

for the Private Sector 1976, based on length of service and final remuneration. Provision for this unfunded commitment

which represents a defined benefit plan under International Accounting Standard 19 – Employee Benefits, has been made by

calculating the notional liability had all such employees left at the balance sheet date.

r) Term loans and bonds

Interest bearing loans and bonds are recognised initially at cost, net of any transaction costs incurred.

s) Cash and cash equivalents

Cash and cash equivalents comprise cash and bank balances. For the purpose of the consolidated statement of cash flows, cash

and cash equivalents are presented net of bank overdrafts.

t) Earnings per share

The Group presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or

loss attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding

during the year.

u) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business

segment), or in providing products or services within a particular economic environment (geographical segment), which is

subject to risks and rewards that are different from those of other segments. The Group’s primary format for segment reporting

is based on business segments.

4. Financial risk management

a) Introduction and overview

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and

processes for measuring and managing risk.



4. Financial risk management (continued)

a) Introduction and overview (continued)

Risk management framework

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate

risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed

regularly, on an ongoing basis, to reflect changes in market conditions, products and services offered.

The Group Audit Committee is responsible for monitoring compliance with the Group’s risk management policies and

procedures, and for reviewing the adequacy of the risk management framework. The Group audit committee is assisted in these

functions by the Internal Audit.

b) Credit risk

Credit risk is the risk that counter party to a transaction will fail to discharge an obligation and cause the Group to incur a

financial loss. The Group is exposed to credit risk primarily on the loans.

Management of credit risk

committed to customers. Renewals and reviews of facilities are subject to the same review process;

in accordance with risk management strategy and market trends.

All loans are with local individuals and locally incorporated entities. The credit risk on these loans is actively managed and

rigorously monitored in accordance with well-defined credit policies and procedures. The creditworthiness of each borrower is

evaluated prior to lending and with a comprehensive review of information which includes the Credit Bureau report. The Group

is also subject to single obligor limits as specified by the Central Bank. Credit review procedures are in place to identify at an

early stage exposures which require more detailed monitoring and review. Appropriate procedures for follow-up and recovery

(including recourse to legal action) are in place to monitor the credit risk on loans.

Exposure to credit risk

The Group is not exposed to any significant concentration of credit risk arising from exposures to a single debtor or debtors

having similar characteristics such that their ability to meet their obligations is expected to be affected similarly by changes in

economic or other conditions.

Regular audits of business units and Group credit processes are undertaken by Internal Audit and Compliance Division.



The Group measures its exposure to credit risk by reference to the gross carrying amount of financial assets less amounts offset,

interest suspended and impairment losses, if any. The maximum credit risk exposure of the loans is the carrying value amount

net of the deferred income and net of impairment allowance.

LOANS 2008 2007

Carrying amount 149,769 129,955

Individually impaired

Gross amount 4,500 3,747

Interest suspended (344) (270)

Specific allowance for impairment (2,125) (1,845)


Past due but not impaired

Watch list – overdue by less than 90 days 4,220 3,081

Collective impairment allowance (675) (530)


Neither past due nor impaired

Gross amount 145,293 126,665

Collective impairment allowance (1,100) (893)



Impaired loans

Impaired loans are financial assets for which the Group determines that it is probable that it will be unable to collect all principal

and interest due according to the contractual terms of the agreements.

The Group’s exposure to credit risk from trade receivables in the automotive business is influenced mainly by the individual

characteristics of each customer.

The Group has established policies and procedures under which each customer is analyzed individually for creditworthiness. At

collective impairment allowance. Substantially all commercial past due receivables are less than one year.




b) Credit risk (continued)

Allowances for impairment

The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio.

The main components of this allowance are a specific loss component that relates to individually significant exposures, and a

collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but

have not been identified on loans subject to individual assessment for impairment.

Write-off policy

The Group writes off any loans (and any related allowances for impairment) when the loans are deemed to be uncollectible.

Collateral

The Group generally holds collateral against loans which may be in the form of mortgage interests over property with custody of

title deeds, joint registration of vehicles and/or additionally post dated cheques/promissory notes and personal guarantees.

Management estimates the fair value of collaterals and other security enhancements held against individually impaired loans

are reasonably sufficient to cover the value of such loans at the reporting date. The Group monitors concentrations of credit risk

by product.

Credit risk concentration

Settlement risk

The Group’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss

due to the failure of a counter party to honour its obligations to deliver cash, securities or other assets as contractually agreed.

Derivative related credit risk

Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default on its contractual

obligations and is limited to the positive market value of instruments that are favourable to the Group which are included in

other assets. The positive market value is also referred to as the "replacement cost" since it is an estimate of what it would cost

to replace transactions at prevailing market rates if a counterparty defaults. The Group’s derivative contracts are entered into

with other financial institutions.

Credit risk related to trade receivables

Credit risk related to trade receivables arises from the potential for a counterparty to default from repayment of their dues. The

Group has established an appropriate authorisation structure with limits for the approval and renewal of credits.



c) Maturity and Liquidity risk

maturity profileThe maturity profile of the Group’s assets and liabilities based on the contractual repayment arrangements is given below. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date.

At 31 December Within 1 Year 1 year to 5 years Over 5 years Total

2008 2007 2008 2007 2008 2007 2008 2007

ASSETS Cash and cash equivalents 1,144 2,379 - - - - 1,144 2,379Loans 51,414 47,791 94,751 77,723 3,604 4,441 149,769 129,955Trade and other receivables 5,041 5,580 - - - - 5,041 5,580Inventories 29,833 23,010 - - - - 29,833 23,010Property and equipment - - 2,044 2,031 11,429 9,459 13,473 11,490Other assets 436 28 - - - - 436 28

87,868 78,788 96,795 79,754 15,033 13,900 199,696 172,442

LIABILITIES Bank overdrafts 2,971 3,330 - - - - 2,971 3,330Trade and other payable 30,411 25,188 - - - - 30,411 25,188Term loans 19,688 78,576 62,112 6,351 - - 81,800 84,927Bonds - - 19,928 19,890 - - 19,928 19,890

53,070 107,094 82,040 26,241 - - 135,110 133,335

The maturity profile is based on contractual repayment arrangements, which do not take account of the Group’s practice of "rolling over" the term loans at maturity, depending on the available liquidity. The maturity profile is monitored by the management to ensure adequate liquidity is maintained.

Liquidity riskLiquidity or funding risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain sources of funding to dry up immediately.

management of liquidity riskThe Group’s approach to managing liquidity risk is to ensure that the Group secures funding significantly larger than present and future requirements. The Group continuously monitors the extent to which contractual receipts exceed contractual payments and the levels of new advances are correlated to the levels of liquidity.

NOTES TO THE CONSOLIDATED FINANCIAL STATEmENTSFOR THE YEAR ENDED 31 DECEmBER 2008BAHRAINI DINARS THOUSANDS



c) Maturity and Liquidity risk (continued)

The residual future contractual maturity of financial assets and liabilities are summarised in the table below. The future

contractual undiscounted cash flows of financial assets and financial liabilities have been disclosed at the carrying value and

prevailing interest rates at the reporting date until their final maturities.

At 31 December 2008 Carrying Contractual Within 1 year to Over

amount undiscounted 1 Year 5 years 5 years

cash flows

ASSETS

Cash and cash equivalents 1,144 1,144 1,144 - -

Loans 149,769 210,313 67,889 138,027 4,397

Trade and other receivables 5,041 5,041 5,041 - -

155,954 216,498 74,074 138,027 4,397

LIABILITIES

Bank overdrafts (2,971) (2,990) (2,990) - -

Trade and other payable (21,132) (21,132) (21,132) - -

Term loans (81,800) (115,466) (23,743) (91,723) -

Bonds (19,928) (26,583) (918) (25,666) -

(125,831) (166,172) (48,783) (117,389) -

At 31 December 2007 Carrying Contractual Within 1 year to Over

amount undiscounted 1 Year 5 years 5 years

cash flows

ASSETS

Cash and cash equivalents 2,379 2,379 2,379 - -

Loans 129,955 181,379 62,086 113,875 5,418

Trade and other receivables 5,580 5,580 5,580 - -

137,914 189,338 70,045 113,875 5,418

LIABILITIES

Bank overdrafts (3,330) (3,351) (3,351) - -

Trade and other payable (22,218) (22,218) (22,218) - -

Term loans (84,927) (89,718) (24,209) (65,509) -

Bonds (19,890) (32,077) (1,115) (30,962) -

(130,365) (147,364) (50,893) (96,471) -



d) Market risks

Market risk is the risk that the Group’s income and / or value of a financial instrument will fluctuate because of changes in

market prices such as interest rates.

Management of market risks

Market risks are closely monitored by the risk management division and reported to the Assets and Liabilities Committee (ALCO)

and the Board.

Interest rate risk

Interest rate risk is the risk that the Group’s earnings will be affected as a result of movements in interest rates. The Group’s

interest rate exposures arise from its interest earning assets and interest-bearing liabilities i.e. balance with banks, loans, bank

overdrafts, bonds and term loans. The distribution of financial instruments between interest rate categories is summarised

At 31 December Fixed Floating Non-interest Total

Rate Rate Earning

2008 2007 2008 2007 2008 2007 2008 2007

ASSETS

Cash and cash equivalents - - - - 1,144 2,379 1,144 2,379

Loans 149,630 129,803 - - 139 152 149,769 129,955

Trade and other receivables - - - - 5,041 5,580 5,041 5,580

149,630 129,803 - - 6,324 8,111 155,954 137,914

LIABILITIES

Bank overdrafts - - 2,971 3,330 - - 2,971 3,330

Trade and other payables - - - - 30,411 25,188 30,411 25,188

Term loans - - 81,800 84,927 - - 81,800 84,927

Bonds - - 19,928 19,890 - - 19,928 19,890

- - 104,699 108,147 30,411 25,188 135,110 133,335

The Group’s instalment loans receivables are predominantly of a fixed rate nature (the Group has, however, reserved the

right under the terms of the agreement with customers to vary the rate at its discretion after giving the customer one month’s

notice) while its bank borrowings and bonds payable are of a floating rate nature. To hedge this risk, the Group uses interest

rate swaps and caps to reduce exposure to fluctuations of interest rates. At 31 December 2008 interest rate risk attributable to

value changes of the interest rate swaps are recognised in equity (page 26). The cash flows relating to the interest rate swaps

are expected to occur over a period of 4 years from the balance sheet date. The Group does not enter into derivative financial

instruments other than for economic hedging purposes.

The unhedged portion of the floating rate borrowing is sensitive to changes in the interest rates. As at 31 December 2008

a change in variable rate financial instruments by 100 basis points will increase/ (decrease) net profits by BD 218.




d) Market risks (continued)

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates and arises

from financial instruments denominated in a foreign currency.

The Group had the following significant net exposures denominated in foreign currency relating to its subsidiary trading in

motor vehicles as of 31 December.

2008 2007

Japanese Yen 3,105 -

6,977 16,847

The Bahraini dinar is effectively pegged to the Dollar, thus currency risk occurs mainly in respect of Japanese Yen.

A 10 percent strengthening of the Bahraini Dinar against the Japanese Yen at 31 December would have increased (decreased)

equity by JPY 143 thousand subject to all other variables, in particular interest rates, remain constant.

The Group uses foreign exchange options to hedge its foreign exchange risk on its short-term liabilities denominated in Japanese

e) Operational risks

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes,

personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those

arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks

arise from all of the Group’s operations and are faced by all business entities.

The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage, to the

Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The Group has established a framework of policies and procedures to identify, assess, control, manage and report risks. The

Group’s risk management division employs clear internal policies and procedures to reduce the likelihood of any operational

losses. Where appropriate, risk is mitigated by way of insurance.

f) Capital management

The Group’s policy is to maintain a strong capital base. The Central Bank of Bahrain sets and monitors capital requirements for

the Group. The conventional financing company license granted by the Central Bank of Bahrain limits borrowings to five times

the capital and reserves (shareholders equity) of the Company. Such rate as at 31 December 2008 for the Company was 2.1



5. Use of estimates and judgements

In the process of applying the Group’s accounting policies management has made the following estimates and judgements, which

have the most significant effect on the amounts recognised in the consolidated financial statements.

(i) Impairment charge on loans

Impairment losses are evaluated as described in accounting policy 3(d). The Group evaluates impairment on loans

on an ongoing basis and a comprehensive review on a monthly basis to assess whether an impairment charge should

be recognised in the income statement. In particular, considerable judgement by management is required in the estimation

of the amount and timing of future cash flows when determining the level of impairment charge required. In estimating these

cash flows, management makes judgements about counterparty’s financial situation and other means of settlement and

the net realizable value of any underlying collateral. Such estimates are based on assumptions about several factors

involving varying degrees of judgement and uncertainty, and actual results may differ resulting in future changes to such

impairment charges.

(ii) Collective impairment charge on loans

In addition to specific impairment charge against individually impaired assets, the Group also maintains a collective

impairment allowance against portfolios of loans with similar economic characteristics which have not been specifically

identified as impaired. In assessing the need for collective impairment charge, management considers concentrations,

credit quality, portfolio size and economic factors. In order to estimate the required allowance, assumptions are made to

define the way inherent losses are modelled and to determine the required input parameters, based on historical and current

economic conditions.

(iii) Contingent liability arising from litigations

Due to the nature of its operations, the Group may be involved in litigations arising in the ordinary course of business.

Provision for contingent liabilities arising from litigations is based on the probability of outflow of economic resources

and reliability of estimating such outflow. Such matters are subject to many uncertainties and the outcome of individual

matters is not predictable with assurance.

6. Fair value of financial instruments

The Group’s consolidated financial statements are measured at amortised cost except for derivative financial instruments,

which are carried at fair value. Fair values represent the amount at which an asset could be exchanged, or a liability settled, in

a transaction between knowledgeable, willing parties in an arm’s length transaction.

liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms.

The Company’s loans are within the normal range of market rates prevailing at the balance sheet date and therefore, their

fair values are considered to approximate their carrying values. The fair value of the derivatives, which are not exchange

traded, is estimated at the amount the Group would receive or pay to terminate the contract at the balance sheet date taking

into account current market conditions and the current credit worthiness of the counterparties. The fair values of all other

financial instruments approximated their respective book values due to their short-term nature or because they are at floating

rates of interest.



7. Loans

2008 2007

At 31 December 149,769 129,955

Impairment allowances

At 1 January 3,268 2,908

Net charge to income statement 1,228 1,204

Loans written-off (596) (844)

At 31 December 3,900 3,268

8. Non-performing loans 2008 2007

At 31 December 3,520 3,219

Non-performing loans are defined as those loans on which payments of interest or principal are 90 days or more past due. In

compliance with Central Bank of Bahrain requirements, interest on non performing loans is placed on a non-accrual status and

interest on such loans is reversed from income and is accounted on a cash received basis. This policy had no material impact

on the net income of the Group for the year.

9. Inventories

2008 2007

Automotive stock Vehicles, net of provisions 27,952 21,123

Spare parts, net of provisions 1,881 1,887

At 31 December 29,833 23,010



10. Property and equipment

Land and Furniture Vehicles 2008 2007

buildings fixtures & equipment Total Total

Cost

At 1 January 10,658 2,314 3,568 16,540 15,193

Additions 1,415 810 1,845 4,070 3,034

Disposals and retirements (88) (370) (891) (1,349) (1,687)

At 31 December 11,985 2,754 4,522 19,261 16,540

Depreciation/Amortization

1 January 2,400 1,453 1,197 5,050 4,404

Charge for the year 370 421 935 1,726 1,576

Disposals and retirements (78) (369) (541) (988) (930)

At 31 December 2,692 1,505 1,591 5,788 5,050

Net book value

At 31 December 2008 9,293 1,249 2,931 13,473

At 31 December 2007 8,258 861 2,371 11,490

11. Term loans

2008 2007

Repayable within one year 3,770 78,576

Repayable after one year 78,030 6,351

81,800 84,927

Term loans have floating interest rates, which are subject to repricing on a quarterly or half-yearly basis. The effective interest

12. Bonds

2008 2007

Face value 20,000 20,000

(72) (110)

19,928 19,890



12. Bonds (continued)

On 15 June 2005, the Company issued 100,000 bonds with a face value of BD 100 each. The principal terms of the bonds

On 19 June 2006, the Company issued 100,000 bonds with a face value of BD 100 each. The principal terms of the bonds

13. Share capital

2008 2007

Authorised share capital

50,000 50,000

Issued and fully paid

11,000 11,000

Bonus share issued during the year 1,100 -

Rights issue during the year 4,235 -

At 31 December 16,335 11,000

464 171

retained earnings.

On 22 October 2008, a rights issue of 42.35 million shares (35 shares for every 100 shares held) was effected at an exercise

price of 600 fils per share (at a premium of 500 fils per share) which was fully subscribed.



Additional information on shareholding pattern

i. Names and nationalities of the major shareholders and the number of equity shares held in which they have an interest of

Nationality No. of shares % holding

ii. The Company has only one class of equity shares and the holders of these shares have equal voting rights.

Number of Number of % of Total

Categories** Shares Shareholders Issued Shares

Total 163,350,000 1,285 100.00%

** Expressed as a percentage of total issued and fully paid shares of the Company

*** Includes 1,883,426 treasury shares

14. Gross profit on land activities

in nature.

15. Other operating income, net

2008 2007

Net gain on sale of property and equipment-Vehicles 126 98

Incentives 98 83

Other operating income 49 44

273 225



16. Other income

During the year National Motor Company’s central warehouse containing spare parts was destroyed in a fire and BD 423 was

received in excess of the carrying value of the assets lost.

17. Distribution of assets and liabilities

The geographic distribution of predominantly all assets and liabilities of the Group is in Bahrain. The assets and liabilities of the

Group are not concentrated in any particular industry sector.

18. Segmental information

At 31 December Consumer Automotive Real Estate Insurance Total

finance

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

Operating income 10,491 7,907 8,371 7,142 598 1,062 927 712 20,387 16,823

Operating costs (4,198) (3,467) (4,411) (3,847) (140) (177) (200) (155) (8,949) (7,646)

Net profit for the year 6,293 4,440 3,960 3,295 458 885 727 557 11,438 9,177

Assets (Liabilities)

Cash and bank 276 142 773 2,090 6 5 89 142 1,144 2,379

Loans 149,769 129,955 - - - - - - 149,769 129,955

Trade and other

receivables - - 4,597 5,580 - - - - 4,597 5,580

Inter company balances (3,910) (3,552) 735 1,685 2,324 1,795 851 72 - -

Inventories - - 29,833 23,010 - - - - 29,833 23,010

Property & equipment 1,573 1,448 11,900 10,042 - - - - 13,473 11,490

Other assets 436 28 444 - - - - - 880 28

Bank overdrafts (70) (650) (2,901) (2,680) - - - - (2,971) (3,330)

Trade and other

payables (14,342) (7,922) (16,069) (17,266) - - - - (30,411) (25,188)

Term loans (71,719) (77,738) (10,081) (7,189) - - - - (81,800) (84,927)

Bonds (19,928) (19,890) - - - - - - (19,928) (19,890)

Equity (42,085) (21,821) (19,231) (15,272) (2,330) (1,800) (940) (214) (64,586) (39,107)

Capital expenditure 254 130 3,816 2,904 - - - - 4,070 3,034

Depreciation charge 130 95 1,597 1,481 - - - - 1,727 1,576


Bahrain Commercial Facilities Company BSC 47


19. Transactions with related and associated parties

Trading transactions, where the customer or supplier is controlled or significantly influenced by a director of the Company, are

Transactions with key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the

activities of the Group. The key management personnel comprise members of the Board of Directors, the Chief Executive Officer,

the Deputy Chief Executive Officer, the Senior Vice President and the General Managers and their short term compensation and

20. Retirement benefits cost

21. Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number

of ordinary shares outstanding during the year, excluding the average number of ordinary shares purchased by the Company

2008 2007

Profit for the year 11,438 9,177

Weighted average number of equity shares (In 000’s) 130,415 124,205

Basic earnings per share 88 fils 74 fils

As per IAS 33, in the case of bonus issue and rights issue, the number of ordinary shares used for the computation of earning

per share for the current year, and previous year has been adjusted.

Diluted earnings per share is same as the basic earning per share as the Company has no instruments convertible into ordinary

shares that would dilute earnings per share.

CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2008


22. Contingent liabilities

The Group has contingent liabilities for standby letters of credit issued in the normal course of the automotive business amounting

23. New international financial reporting standards and interpretations not yet adopted

During the year following new/amended IFRS’s standards and interpretations relevant to the activities of the Group have been

- IAS 1 Presentation of Financial Statements (effective for financial periods beginning on or after 1 January 2009).

- IFRS 8 Operating Segments (effective for financial periods beginning on or after 1 January 2009).

- Amended IAS 27 - Consolidated and separate financial statements (effective for financial periods beginning on or after

1 January 2009).

- Amendments to IFRS 2 - Share- based payment – vesting conditions and cancellations (effective for financial periods

beginning on or after 1 January 2009).

- The IASB made certain amendments to existing standards as part of its financial improvements project. The effective

dates for these amendments vary by standard and most will be applicable to the Group’s 2009 consolidated financial

statements.

The adoption of these standards and interpretations are not expected to have any material impact on the consolidated balance

sheet and income statement.

24. Proposed appropriations

The Board of Directors has proposed the following appropriations for 2008. These appropriations are subject to approval by the

shareholders at the Annual General Meeting.

2008 2007

Proposed dividends 5,651 4,349

Bonus shares ( 1 share for every 10 shares held) - 1,100

Directors’ fees 220 220

Donations 280 280

General reserve 1,250 2,500

Statutory reserve 1,250 -

8,651 8,449

25. Comparatives

Certain comparatives have been reclassified to conform with the current year’s presentation. Such reclassification did not affect

the previously reported net profit, net assets or equity.

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